COAL

Alpha shareholders felt 'duped' by bankruptcy, DOJ emails show

Alpha Natural Resources Inc. shareholders felt blindsided when the firm filed for bankruptcy in August, raising suspicions that the coal company misled investors and was working with an inner circle of creditors before seeking Chapter 11 protection, emails between Alpha and government attorneys show.

"I did not expect ANR to file BK [bankruptcy] based on my reading of their financial reports, listening to their quarterly conference calls and their actions prior to the filing," one shareholder wrote Aug. 13 to lawyers at the Justice Department.

"I have incurred a loss of close to two million dollars in this investment," the person said, urging the creation of a committee in the case to represent Alpha stockholders.

The shareholders questioned whether Alpha -- despite its "diverse asset base" and low debt compared to competitors -- was working with an outside group of investors to break up the company.

"Without an active and engaged supervision, these guys, the insiders and the select group of creditors, will work to divide up the pie with nothing left for the rest, including the shareholders," this person told three DOJ lawyers. "I think the shareholders need your help."

Once a top American coal company, Alpha submitted Chapter 11 papers Aug. 3, 2015, with $10.1 billion in assets and $7.1 billion in liabilities. Low natural gas prices, weak demand for coal worldwide and environmental regulations have pushed dozens of U.S. coal mining companies into bankruptcy in recent years.

Obtained through a Freedom of Information Act request, emails between attorneys for Alpha and attorneys at the U.S. Trustee Program (USTP), a watchdog unit of the Justice Department, illuminate details of the firm's finances, retirement plans, bonus structure, subsidiaries, overseas bank accounts and relationships with creditors.

The company has not been accused of wrongdoing, and a spokesman did not respond to multiple requests for comment.

'No hint of a problem' days before bankruptcy

Creditors receive money before stockholders in bankruptcy cases, and stockholders typically don't have a committee to represent them during the proceedings. The Securities and Exchange Commission requested the creation of a shareholder committee, emails show.

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Alpha management opposed the formation of a committee for shareholders.

"I am requesting that there be representation for shareholders who were misled into believing everything was fine," a stockholder wrote in a separate message to DOJ attorneys the evening of Aug. 13, 2015.

On May 21, 2015, the day of Alpha's annual meeting, "a glowing report was issued" saying the firm had $2 billion in easily accessible assets and "we would be able to continue operating," this shareholder wrote.

"They announced an earnings report for 8/5 as scheduled, with no hint of a problem, but abruptly filed for bankruptcy protection on 8/3/15," they wrote. "Many shareholders were duped into thinking we were okay at least for a year or two."

Alpha CEO Kevin Crutchfield sounded cautiously upbeat on a conference call in April last year.

"We remain laser-focused on tightly managing all aspects of our business that we can influence," he told analysts. "We'll speak to you again next quarter."

Alpha would be bankrupt in the next quarter.

'Can I make a deal with you?'

The documents show what lawyers spent on coffee, deli food and airfares. They also provide glimpses into the criminal prosecution of Don Blankenship, the former chief executive of Massey Energy Co., which Alpha acquired in 2011.

The correspondence indicates that DOJ lawyers felt obligated to object to executives' bonus payments.

Executive officers at Alpha and rivals, such as Arch Coal Inc., have been criticized over multimillion-dollar compensation packages while thousands of miners have lost their jobs.

Carl Black, counsel for Alpha, emailed a lawyer at the USTP on Dec. 14 and asked if he planned to object to the company's annual incentive bonus plan.

"I do not want to. Can I make a deal with you?" USTP attorney Hugh Bernstein replied.

"I can refrain from objecting if you guys will put an actual witness on the stand," Bernstein said. "I won't cross examine the witness. I just need the record to be clear that this is a not a 'bankruptcy bonus.'"

He continued: "I suspect there will be a lot of press there who will want to characterize it that way and given the timing of this when you've just cut off benefits to the retirees, there is a lot of pressure on us to object to any bonuses."

A spokeswoman for the U.S. Trustee Program declined to comment.

Keeping Blankenship's address out of the public eye

During the case, Alpha proposed to pay about $12 million in executive bonuses for 2016. The USTP later challenged that request, arguing that such payments were unjustifiable when Alpha had lost $1.3 billion in 2015 and was trying to cut $3 million in retiree benefits.

Kevin Huennekens is the judge for Alpha's case, and in May, he approved a company request to sever its contract with miners that the United Mine Workers of America represents.

In a closed-door court session in January, Huennekens approved the approximately $12 million in bonuses, too.

The U.S. Trustee Program said last month that Alpha appeared to be planning to liquidate its business rather than emerge from bankruptcy (ClimateWire, May 11). Environmental groups joined the USTP in its objection to that plan.

Blankenship, the infamous coal boss who was found guilty in April of conspiracy to willfully violate mine health and safety standards, also makes an appearance in the emails.

Early in the case, DOJ attorney Shannon Pecoraro said she didn't have a fax number, home address or email address for Blankenship.

"My understanding is that Mr. Blankenship is the subject of an ongoing criminal prosecution," Black, the attorney representing Alpha, responded. "Putting his address in the document could be problematic on a variety of levels."

$10,000 in flights

The charges against Blankenship were tied to a 2010 explosion at the Upper Big Branch mine in West Virginia. The blast killed 29 men.

Alpha also consolidated two bank accounts into a U.S. account on Friday, July 31, the business day before it filed bankruptcy papers, according to the emails.

Arch Coal did something similar: It paid top executives more than $8 million in bonuses, as well as more than $20,000 in country club and golf dues, the business day before company officials started bankruptcy proceedings (ClimateWire, March 16).

The emails show expensive meals charged on Alpha's tab -- dinners for one billed at $73.22, $97.15 and $98.12 and a two-person meal for nearly $200 -- which Bernstein said "seem a bit excessive."

He also questioned eight flights billed to Alpha that cost more than $10,000 as "a little out of whack from the norm."

"I just need to confirm that those are not any kind of first-class or other upgraded fares," Bernstein wrote to an Alpha lawyer Jan. 4.

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